Climate costs counted
A new report warns climate change is a major threat to Australia’s financial stability, and poses substantial systemic economic risks.
The Climate Council’s report, ‘Compound Costs: How Climate Change is Damaging Australia’s Economy’, finds there are few forces affecting the Australian economy that can match the scale, persistence and systemic risk associated with climate change.
Australia’s financial regulators have recently made a call for action to deal with climate change, with the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Australian Securities and Investment Commission citing risks posed by climate change as a central concern for the economy and financial stability.
The Deputy Governor of the Reserve Bank of Australia recently noted that the risks that climate change poses to the Australian economy are “first order” and have knock-on implications for macroeconomic policy.
The report warns that the local economy will feel direct shocks from climate change, including reduced agricultural yields, damage to property and infrastructure and commodity price hikes.
These effects are likely to lead to painful market corrections and could trigger serious financial instability in Australia and the region, the experts say.
The modelling, based on the Federal Government’s current approach to climate change, finds that the economic damage to Australia’s property and agricultural sectors will be very significant.
Australia’s greenhouse gas emissions have been rising for four years and we are not on track to meet our weak 2030 emissions reduction target. If the world followed Australia’s approach, it would be on track for at least 3-4°C of global warming, which would have catastrophic economic consequences.
It also finds that the property market is expected to lose $571 billion in value by 2030 due to climate change and extreme weather, and will continue to lose value in the coming decades if emissions remain high.
One in every 19 property owners face the prospect of insurance premiums that will be effectively unaffordable by 2030 (costing 1 per cent or more of the property value per year).
Some Australians will be acutely and catastrophically affected. Low-lying properties near rivers and coastlines are particularly at risk, with flood risks increasing progressively and coastal inundation risks emerging as a major threat around 2050.
Certain events which are likely to become more common because of climate change are not covered by commercial insurance, including coastal inundation and erosion.
More than $226 billion in commercial, industrial, road, rail, and residential assets will be at risk from sea level rise alone by 2100, if greenhouse gas emissions continue at high levels.
On a broader scale, the accumulated loss of wealth due to reduced agricultural productivity and labour productivity as a result of climate change is projected to exceed $19 billion by 2030, $211 billion by 2050 and $4 trillion by 2100.
“The severe costs of climate change outlined in this report are not inevitable. To avoid the costs of climate change increasing exponentially, greenhouse gas emissions must decline to net zero emissions before 2050. Investments in resilience and adaptation will be essential to reduce or prevent losses in the coming decades,” the Climate Council states.